Icap Launches U.S. Swap Trading Platform Ahead of Final SEF Rules

Terry Flanagan

Inter-dealer broker Icap has launched an electronic interest rate derivatives platform in the U.S. for trading U.S. dollar interest rate swaps, with streaming prices available from BofA Merrill Lynch, Citi, Deutsche Bank and JPMorgan.

The platform, called i-Swap USD, follows the launch of its European counterpart, i-Swap for Euro IRS.

It employs an open central limit order book model, and supports price improvement by linking liquidity in underlying swaps to liquidity in strategy orders such as spreads, butterflies and spread-overs.

The Commodity Futures Trading Commission has largely completed swaps market rule writing. On October 12 last year, the CFTC and the Securities and Exchange Commission’s foundational definition rules went into effect with the CFTC now seeking to consider and finalize the remaining Dodd-Frank Act swaps reforms some time this year.

Once the final rules associated with running a swap execution facility (SEF) arising from the Dodd-Frank Act are published by the CFTC, i-Swap USD intends to register as a SEF and operate in compliance with the rules and regulations.

“We’ve been tracking the exact timetable for regulatory reform and, in particular, the long- awaited publication of final SEF rules,” said Donald McClumpha, chief executive of i-Swap. “We are preparing the groundwork for the future implementation of SEF-compliant trading architecture. By launching i-Swap in the U.S., we want to make sure the market has the opportunity to realize its benefits and give us the opportunity to make modifications as appropriate ahead of SEF implementation.”

Nat Tyce, head of rates trading at Barclays bank, said in a statement: “As the market evolves and adapts to the new regulatory landscape, i-Swap will become a significant and key part of market infrastructure. Market participants will benefit from utilizing i-Swap in the U.S., through reduced operational risk, lower costs and greater execution options.”

i-Swap provides a “hybrid liquidity pool”, combining voice and electronic markets.

“The platform is open to direct members of SwapClear [the clearing members],” said McClumpha. “Non-members can access the platform via voice brokers and direct members can access it electrically, via a voice broker, or a combination of the two. The idea is to provide maximum flexibility of execution.”

As the result of CFTC rules completed in the first half of last year, 71 swap dealers are now provisionally registered. This initial group of dealers includes the largest domestic and international financial institutions dealing in swaps with U.S. persons. It includes the 16 institutions—the largest derivatives dealers—commonly referred to as the G16 dealers.

Other entities are expected to register over the course of this year once they exceed the de minimis threshold for swap dealing activity.

As of December 31, 2012, provisionally registered swap dealers are reporting in real time their interest rate and credit index swap transactions to the public and to regulators through swap data repositories.

Swap dealers will begin reporting swap transactions in equity, foreign exchange and other commodity asset classes on February 28. Other market participants will begin reporting April 10.

The CFTC is working to finish the pre-trade transparency rules for SEFs, as well as the block rule for swaps. SEFs would allow market participants to view the prices of available bids and offers prior to making their decision on a transaction.

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